China Tower Corporation Limited — Proxy Solicitation & Information Statement 2002

Mar 26, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Beijing Enterprises Holdings Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(incorporated in Hong Kong with limited liability under the Companies Ordinance)
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CONNECTED TRANSACTION

GRANTING OF THE GUARANTEE

Independent financial adviser to the Independent Board Committee

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HORWATH CAPITAL ASIA LIMITED

A letter from the Board is set out on pages 3 to 6 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on page 7 of this circular. A letter from Horwath Capital Asia Limited containing its advice to the Independent Board Committee is set out on pages 8 to 13 of this circular.

A notice convening an extraordinary general meeting of Beijing Enterprises Holdings Limited to be held at 34th Floor, West Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong at 4: 00 p.m. on Thursday, 11th April, 2002 is set out on page 18 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same with Tengis Limited, the share registrar of Beijing Enterprises Holdings Limited, at 4/F Hutchison House, 10 Harcourt Road, Central, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

25th March, 2002

CONTENTS

			Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Background of the Connected Transaction	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Convertible Bonds and the use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			4
Reasons for the provision of the Guarantee		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Connected transaction . . . . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
The EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Recommendation and additional information		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from Horwath Capital . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix — General Information . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Notice of Extraordinary General Meeting . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

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DEFINITIONS

In this circular, the following expressions shall have the following meanings unless the context requires otherwise:

• ‘‘associates’’ has the meaning as ascribed thereto under the Listing Rules

• ‘‘Beijing Yanjing’’ Beijing Yanjing Brewery Company Limited, a joint stock company incorporated in the PRC held as to 69.32% by Yanjing Brewery, and whose shares are listed on the Shenzhen Stock Exchange

• ‘‘Beijing Yanjing Shares’’ ordinary shares of RMB1.00 (approximately HK$0.94) each in the issued share capital of Beijing Yanjing

• ‘‘BEIL’’ Beijing Enterprises Investments Limited, the 61.69% controlling Shareholder of the Company

• ‘‘Board’’ the board of Directors

• ‘‘Company’’ Beijing Enterprises Holdings Limited, a company incorporated in Hong Kong with Limited liability, the shares of which are listed on the Stock Exchange of Hong Kong

• ‘‘Connected Transaction’’ the granting of the Guarantee

• ‘‘Convertible Bonds’’ possible 5 years convertible bonds to be issued by Beijing Yanjing with aggregate principal amount of RMB700 million (approximately HK$660 million) with a face value of RMB100 (approximately HK$94) each

• ‘‘Counter Indemnity’’ indemnity provided by Yanjing Group to indemnify the Company in respect of any contingencies arising from the portion of the Guarantee exceeding the Company’s effective proportional equity interest in Beijing Yanjing

• ‘‘Director(s)’’ the director(s) of the Company

• ‘‘EGM’’ the extraordinary general meeting of the Company to be convened to consider the Connected Transaction

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘Guarantee’’ corporate guarantee executed by the Company in favour of the Investors for the issue of the Convertible Bonds in full amount and interest thereon

• ‘‘HK$’’ Hong Kong dollars, the official currency of Hong Kong

• ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC

• ‘‘Horwath Capital’’ Horwath Capital Asia Limited, an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and the independent financial adviser to the Independent Board Committee

• ‘‘Independent Board the independent board committee of the Company comprising Mr. Lau Hon Committee’’ Chuen, Ambrose, Mr. Lee Tung Hai, Leo and Mr. Wang Xian Zhang, established for the purpose of advising the Shareholders

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DEFINITIONS

• ‘‘Investors’’ prospective investors of the Convertible Bonds

• ‘‘Latest Practicable Date’’ 22nd March, 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• ‘‘Listing Rules’’ The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

• ‘‘PRC’’ The People’s Republic of China, excluding Hong Kong for the purpose of this circular

• ‘‘RMB’’ Renminbi, the official currency of the PRC ‘‘Share(s)’’ ordinary share(s) of HK$0.10 each in the issued share capital of the Company

• ‘‘Shareholders’’ the shareholders of the Company ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘Yanjing Brewery’’ Beijing Yan Jing Brewery Co., Ltd., a sino foreign equity joint venture company established in the PRC, which owns 69.32% interest of Beijing Yanjing, and which is held as to 80% and 20% respectively by the Company and Yanjing Group

• ‘‘Yanjing Group’’ Beijing Yan Jing Beer Corporation, a state-owned company established in the PRC which owns 20% interest in Yanjing Brewery

• ‘‘%’’ per cent.

In this circular, the exchange rate of HK$1.00 to RMB1.0613 has been used for the purpose of illustration only and does not constitute a representation that any amount have been, could have been, or may be exchanged

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LETTER FROM THE BOARD

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(incorporated in Hong Kong with limited liability under the Companies Ordinance)

Directors:

Hu Zhao Guang (Chairman) Yi Xi Qun (Vice Chairman) Xiong Da Xin (Executive Vice Chairman & President) Bai Jin Rong (Executive Vice President) Liu Kai (Vice President) Xing Chun Hua Zheng Wan He Wei En Hong Li Fu Cheng Bi Yu Xi Li Man Li Zhong Gen Lau Hon Chuen, Ambrose (Independent non-executive Director) Lee Tung Hai, Leo (Independent non-executive Director) Wang Xian Zhang (Independent non-executive Director) Fang Fang (Non-executive Director)

Registered Office: 34th Floor West Tower Shun Tak Centre 168–200 Connaught Road Central Hong Kong

25th March, 2002

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

GRANTING OF THE GUARANTEE

INTRODUCTION

The Board announced on 6th March, 2002 that the Company have conditionally agreed to provide the Guarantee in favour of the Investors in respect of the Convertible Bonds to be issued by Beijing Yanjing, an indirect subsidiary effectively held as to approximately 55.45% by the Company.

Yanjing Group, the other indirect shareholder of Beijing Yanjing, agrees to provide the Counter Indemnity to the Company to indemnify the Company in respect of its provision of the portion of the Guarantee which exceeds its effective proportional equity interest in Beijing Yanjing.

Given that the Company’s provision of the Guarantee is greater than its proportional equity interest in Beijing Yanjing, the provision of the Guarantee constitutes connected transaction under Rule 14.26 (6) (a) of the Listing Rules and will require Shareholders’ approval in EGM. Yanjing Group and its associates will abstain from voting.

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LETTER FROM THE BOARD

The purpose of this circular is to give you further information on the Connected Transaction, to set out the recommendation of the Independent Board Committee and the independent advice of Horwath Capital and to give you notice of the EGM.

BACKGROUND OF THE CONNECTED TRANSACTION

The following diagram illustrates the corporate structure of the relevant companies involved in the Connected Transaction and the Connected Transaction itself.

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44.55%
Counter
The Company Yanjing Group
Indemnity
80% 20%
Yanjing Brewery
100% 69.32%
Beijing Yanjing
Convertible
Bonds
Investors
Guarantee
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The Company have conditionally agreed to provide the Guarantee in favour of the Investors for the payment of an aggregate principal amount of RMB700 million (approximately HK$660 million) and interest thereon of the Convertible Bonds with a face value of RMB100 (approximately HK$94) each to be issued by Beijing Yanjing, an indirect subsidiary effectively held as to approximately 55.45% by the Company. No payment nor security in respect of the provision of the Guarantee will be provided by Beijing Yanjing to the Company.

Yanjing Group, the other indirect shareholder of Beijing Yanjing, will provide the Counter Indemnity to the Company. No guarantee nor security will be given by the Company to Yaijing Group in respect of the Counter Indemnity.

THE CONVERTIBLE BONDS AND THE USE OF PROCEEDS

Beijing Yanjing has resolved to issue the 5 years Convertible Bonds in an aggregate principal amount of RMB700 million (approximately HK$660 million) with a face value of RMB100 (approximately HK$94) each. Interest in the Convertible Bonds is payable at rate between 0.8% and 1.2% per annum. The

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LETTER FROM THE BOARD

Convertible Bonds are exchangeable into a number of fully-paid shares of Beijing Yanjing Shares. The exercise price of the Convertible Bonds shall be determined, subject to adjustment in certain events, on the basis of the average of the market price of the Beijing Yanjing Shares for the 30 consecutive trading days ending on the trading day immediately preceding the date of issuing the Convertible Bonds prospectus with upward adjustment in the range of 10% to 30%. The Convertible Bonds are being offered to public investors in the PRC. The terms of the Convertible Bonds are subject to the change of market conditions at the time of issue and such issue is conditional upon the obtaining of necessary consents and approval by the China Securities Regulatory Commission. The Company will comply with the Listing Rules (if applicable) in relation to the dilution in the interest of Beijing Yanjing regarding the issue of the Convertible Bonds.

Beijing Yanjing plans to use the net proceeds from the issue of the Convertible Bonds to upgrade its beer and mineral water production facilities and to expand its business and market share by identifying and investing in potential acquisition targets engaged in the beer, mineral water and related businesses, and the remaining thereof will be used for general working capital purposes.

REASONS FOR THE PROVISION OF THE GUARANTEE

As the Company has been requested to provide the Guarantee, the Directors believe that the Investors tend to be more confident in having a company listed on the Stock Exchange to provide the Guarantee. Yanjing Group’s agreement to provide Counter Indemnity to the Company as stated above will greatly reduce the commercial risk on the part of the Company and will maintain the Company’s liability in the Guarantee in essentially proportional to its effective equity interest in Beijing Yanjing. The Directors consider that it is in the interest of the Company to assist Beijing Yanjing to ensure a successful fund-raising exercise through the issue of the Convertible Bonds because Beijing Yanjing can use the net proceeds of the Convertible Bonds issue to strengthen its development to meet the future challenge following the PRC’s accession to World Trade Organisation. Based on above analysis, the Directors are of the view that the granting of the Guarantee is fair and reasonable so far as the Company and the Shareholders are concerned.

CONNECTED TRANSACTION

Given that the Company’s provision of the Guarantee is greater than its proportional equity interest in Beijing Yanjing, the provision of the Guarantee constitutes connected transaction under Rule 14.26 (6) (a) of the Listing Rules and will require Shareholders’ approval in EGM. Yanjing Group and its associates will abstain from voting.

THE EGM

Notice of the EGM is set out on page 18 of this circular. At the EGM, an ordinary resolution will be proposed to approve the granting of the Guarantee. Yanjing Group and its associates will abstain from voting in the EGM.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event by not later than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

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LETTER FROM THE BOARD

RECOMMENDATION AND ADDITIONAL INFORMATION

The Directors consider that the Connected Transaction is on normal commercial terms and was negotiated on arm’s length basis. The Directors further consider that the Connected Transaction is in the interest of the Company and are fair and reasonable so far as the Shareholders are concerned.

Your attention is drawn to (i) the ‘‘Letter from the Independent Board Committee’’ set out on page 7 of this circular which contains the recommendation of the Independent Board Committee to the Shareholders regarding the Connected Transaction, and (ii) the ‘‘Letter from Horwath Capital’’ set out on pages 8 to 13 of this circular which contains the advice of Horwath Capital to the Independent Board Committee in relation to the Connected Transaction and the principal factors and reasons considered by Horwath Capital in arriving at its advice.

Your attention is drawn to the additional information set out in the appendix in this circular.

Yours faithfully, By order of the Board Tam Chun Fai Company Secretary

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(incorporated in Hong Kong with limited liability under the Companies Ordinance)

25th March, 2002

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

GRANTING OF THE GUARANTEE

We refer to the circular issued by the Company to the Shareholders dated 25th March, 2002 (the ‘‘Circular’’) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

Under the Listing Rules, the granting of the Guarantee constitutes connected transaction for the Company and are subject to the approval of the Shareholders at the EGM.

We have been appointed by the Board to consider the terms of the Connected Transaction and to advise the Shareholders in connection with the Connected Transaction as to whether, in our opinion, its terms are fair and reasonable so far as the Shareholders are concerned. Horwath Capital has been appointed as the independent financial adviser to advise us in this respect.

We wish to draw your attention to the letter from the Board as set out on pages 3 to 6 and the letter from Horwath Capital as set out on pages 8 to 13 of the Circular respectively.

Having considered the principal factors and reasons considered by, and the advice of Horwath Capital as set out in its letter of advice, we consider that the terms of the Connected Transaction are fair and reasonable so far as the Shareholders are concerned.

Accordingly, we recommend the Shareholders to vote in favour of the ordinary resolution to approve the Connected Transaction at the EGM.

Yours faithfully, For and on behalf of

The Independent Board Committee Lau Hon Chuen, Ambrose Lee Tung Hai, Leo Wang Xian Zhang

Independent Non-executive Directors

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LETTER FROM HORWATH CAPITAL

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HORWATH CAPITAL ASIA LIMITED

2001 Central Plaza 18 Harbour Road, Hong Kong

25th March, 2002

To the Independent Board Committee of Beijing Enterprises Holdings Limited

Dear Sirs,

CONNECTED TRANSACTION

GRANTING OF THE GUARANTEE

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee in respect of the Connected Transaction, details of which are set out in the letter from the Board (the ‘‘Board Letter’’) contained in the circular of the Company dated 25th March, 2002 (the ‘‘Circular’’) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context of this letter otherwise requires.

The Connected Transaction involves the granting of the Guarantee by the Company in favour of the Investors in respect of an aggregate principal amount of RMB700 million (approximately HK$660 million) and interest thereon of the Convertible Bonds with a face value of RMB100 (approximately HK$94) each to be issued by Beijing Yanjing, an indirect subsidiary effectively held as to approximately 55.45% by the Company. Yanjing Group, the other indirect shareholder of Beijing Yanjing, agrees to provide the Counter Indemnity to the Company.

Given that the Guarantee provided by the Company to Beijing Yanjing exceeds the Company’s proportional interest in Beijing Yanjing, such granting of the Guarantee constitutes connected transaction under Rule 14.26 (6) (a) of the Listing Rules and will be subject to approval by Shareholders in the EGM with Yanjing Group and its associates abstaining from voting. Accordingly, the Board has appointed the Independent Board Committee to consider whether the terms of the Connected Transaction are fair and reasonable so far as the Shareholders are concerned. Horwath Capital has been appointed to advise the Independent Board Committee in this respect.

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LETTER FROM HORWATH CAPITAL

BASIS OF OUR ADVICE

In formulating our advice, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations contained or referred to in the Circular and all information and representations which have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so at the date hereof. We have sought and received confirmation from the Directors that there are no other facts the omission of which would make any statement made in the Circular misleading.

We consider that the information reviewed by us is sufficient for the purpose of our advice set out in this letter and we have no reason to doubt the truth, accuracy, or completeness of the information provided to us by the Company or the Directors. We have not, however, conducted any form of independent verification of the information provided by the Directors, nor have we conducted an independent investigation into the business and affairs of the Group.

PRINCIPAL FACTORS CONSIDERED

In arriving at our recommendation in respect of the Connected Transaction, we have taken into consideration the following principal factors:

1. Background and reasons for granting the Guarantee

As referred to in the letter from the Board set out on pages 3 to 6 of the Circular, the Company has been requested to provide the Guarantee for the full principal amount and interest thereon of the Convertible Bonds to be issued by Beijing Yanjing which is held effectively as to 55.45% by the Company. Of the remaining 44.55% interest of Beijing Yanjing not held by the Company, 13.86% is effectively held by Yanjing Group, and 30.69% is effectively held by public investors and promoters in the PRC. The Directors advised that the Guarantee will be entered into on normal commercial terms.

Beijing Yanjing is principally engaged in the production and sale of beer, mineral water, and other related products. Beijing Yanjing plans to use the net proceeds from the Convertible Bonds issue to upgrade its beer and mineral water production facilities, expand its business and market share by identifying and investing in potential acquisition targets engaged in the beer, mineral water and related businesses, and strengthen its working capital position.

The Directors advised that the Investors tend to be more confident in having the Company, a company listed on the Stock Exchange, to provide the Guarantee. As such, the Directors believe that it would be difficult for Beijing Yanjing to independently achieve a successful Convertible Bonds issue without the support from the Company. We are of the view that it is not unreasonable, taking into account the fact that the Company has an effective equity interest approximating 55.45% in Beijing Yanjing (and therefore has indirect control of Beijing Yanjing), for the Company to provide the Guarantee to the Investors.

According to the Company’s interim report for the period ended 30th June 2001, one of the Group’s objectives is to enhance return on assets and equity. In order for the Company to achieve better returns from its indirect shareholding in Beijing Yanjing, the Directors believe that it is in the Shareholders’ interest that the Company assists Beijing Yanjing in raising the necessary funds

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LETTER FROM HORWATH CAPITAL

required to strengthen its development to meet future challenges following the PRC’s accession to the World Trade Organization. On this basis, we consider the granting of the Guarantee to be in line with the Group’s overall business objectives and expansion need.

2. The Counter Indemnity

Yanjing Group, the other indirect shareholder of Beijing Yanjing, agrees to provide the Counter Indemnity to the Company to indemnify the Company in respect of 44.55% of the Guarantee, representing the portion of the Guarantee which exceeds the Company’s effective proportional equity interest in Beijing Yanjing. Yanjing Group’s agreement to provide the Counter Indemnity will greatly reduce the commercial risk on the part of the Company and will essentially contain the Company’s contingent liability in relation to the Guarantee in the proportion of its effective equity interest in Beijing Yanjing. For further information on Yanjing Group, please refer to the paragraph headed ‘‘Background and Financial Position of Yanjing Group’’ on page 11 of this circular.

3. The Convertible Bonds and other financing alternatives for Beijing Yanjing

As set out in the letter from the Board, Beijing Yanjing is considering to issue the Convertible Bonds up to an aggregate principal amount of RMB700 million (approximately HK$660 million) with face value of RMB100 (approximately HK$94) each, and interest payable at rate ranging between 0.8% and 1.2% per annum. The Convertible Bonds are exchangeable into the Beijing Yanjing Shares at any time from the second anniversary of the date of the issue of the Convertible Bonds to the maturity date of the Convertible Bonds. The Directors advised that the exercise price of the Convertible Bonds shall be determined, subject to adjustment in certain events, on the basis of the average of the market price of the Beijing Yanjing Shares for the 30 consecutive trading days ending on the trading day immediately preceding the date of issue of the Convertible Bond prospectus with upward adjustment in the range of 10% to 30%. The Directors also estimated that the exercise price of the Convertible Bonds will not be less than RMB10 (approximately HK$9.4) per Beijing Yanjing Share pursuant to Beijing Yanjing’s agreement for the Company to maintain its effective interest in Beijing Yanjing at above an estimated 50.1% level, even in the event of full conversion of the Convertible Bonds. The Convertible Bonds are being offered to public investors in the PRC. The terms of the Convertible Bonds are subject to the change of market conditions at the time of issue and such issue is conditional upon the consent and approval of the China Securities Regulatory Commission.

The Company now holds approximately 55.45% effective interest in Beijing Yanjing. Upon the conversion of the Convertible Bonds, the Company’s final shareholding in Beijing Yanjing is subject to, amongst other things, the conversion price of the Convertible Bonds, which is in turn partly dependent on Beijing Yanjing Share prices for the 30 trading days preceding the date of issue of the Convertible Bonds prospectus. As advised by the Directors, pursuant to Beijing Yanjing’s agreement to procure that the Company’s effective interest in Beijing Yanjing remains at above an estimated 50.1% level amidst potential dilution effect arising from the conversion of the Convertible Bonds, the conversion price of the Convertible Bonds will not fall below RMB10 (approximately HK$9.4). On this basis, even if all the Investors choose to convert the Convertible Bonds into the Beijing Yanjing Shares, we consider the potential dilution from an effective interest of approximately 55.45% to an estimated minimum effective interest of 50.1% to be insignificant and acceptable considering that the Company will retain an effective majority control of Beijing Yanjing in any case.

We were advised by the Directors that Beijing Yanjing had considered other financing methods such as share placement or debt financing. After due and careful assessment, Beijing Yanjing considered that it was preferable to raise funds through the issue of the Convertible Bonds primarily due to the relatively low liquidity of the Beijing Yanjing Shares which were trading at an average

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LETTER FROM HORWATH CAPITAL

daily volume of approximately 0.1% of Beijing Yanjing’s entire issued share capital for the 90 trading days preceding the Latest Practicable Date inclusively, and the possible depression effect an equity funding exercise may have on its share price. The Directors also advised that the Convertible Bonds offer a flexible method of financing that allows Beijing Yanjing to obtain funding at a cost that is significantly lower than the effective interest rate on its borrowings of approximately 8.0% as derived from its audited financial statements for the year ended 31st December, 2001 (issued by Beijing JingDu Certified Public Accountants Co., Ltd. in Beijing, PRC), and at conversion price between 10% and 30% above the average price of the Beijing Yanjing Shares for the 30 consecutive trading days preceding the date of issue of the Convertible Bond prospectus, with the prospect of significantly expanding Beijing Yanjing’s capital base in the future.

Given the reasons stated above, and having regard to the terms of the Convertible Bonds, we concur with the Directors that the issue of the Convertible Bonds is a suitable financing solution for Beijing Yanjing’s expansion plan.

4. Financial position of Beijing Yanjing

Based on the audited consolidated profit and loss account and consolidated balance sheet of Beijing Yanjing for the year ended 31st December, 2001, it was in a net cash position of approximately RMB409 million (approximately HK$385 million), and its turnover and net assets were approximately RMB2.3 billion (approximately HK$2.2 billion) and approximately RMB3.6 billion (approximately HK$3.4 billion) respectively. The Convertible Bonds’ aggregate principal amount of RMB700 million (approximately HK$660 million) represents approximately 30.6% and 19.5% of the audited consolidated turnover and net assets of Beijing Yanjing for the year ended 31st December, 2001 respectively. After considering the above, including the business and gearing levels of Beijing Yanjing, and the fact that Beijing Yanjing has no other existing convertible instruments in issue, we are of the view that the amount of Convertible Bonds is not excessive.

5. Background and financial position of Yanjing Group

Yanjing Group’s principal activities are investment holding of an indirect interest of Beijing Yanjing, and the manufacture and sale of beverages such as juices and sodas.

Based on the unaudited consolidated profit and loss account and consolidated balance sheet of Yanjing Group for the year ended 31st December, 2001, its turnover and net profit were approximately RMB131 million (approximately HK$123 million) and approximately RMB32.5 million (approximately HK$30.6 million) respectively, and its total assets, net assets and cash on hand were approximately RMB1,703 million (approximately HK$1,605 million), approximately RMB759 million (approximately HK$715 million) and approximately RMB292 million (approximately HK$275 million) respectively. Yanjing Group’s maximum exposure arising from the Counter Indemnity (excluding the interest to be incurred on the Convertible Bonds) amounts to approximately RMB312 million (approximately HK$294 million), representing approximately 18% and approximately 41% of its total assets and net assets respectively as at 31st December, 2001. In addition, Yanjing Group’s cash on hand nearly matches the amount of the Counter Indemnity.

Based on the above, we are of the view that Yanjing Group will be able to fulfil its obligation arising from the Counter Indemnity in the event that the Guarantee should be called upon.

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LETTER FROM HORWATH CAPITAL

6. Pro forma financial effects to the Group

Upon the issue of the Convertible Bonds, assuming full utilization of the proceeds to be generated from the Convertible Bonds, the net debt to equity ratio of the Group will increase from approximately 18.2% and 9.5% based on the consolidated balance sheet as at 30th June, 2001 (unaudited) and 31st December, 2000 (audited) to 23.5% and 15.1% respectively. Taking into consideration the above and the fact that the issue of the Convertible Bonds will not affect the Group’s overall net assets position, we consider the issue of the Convertible Bonds by Beijing Yanjing to be acceptable so far as the Shareholders are concerned.

Taking into account the Counter Indemnity but excluding the interest to be incurred on the Convertible Bonds, the net potential exposure to the Company arising from the Guarantee amounts to approximately RMB388 million (approximately HK$366 million). This represents approximately 5.4% and approximately 5.6% of the Group’s consolidated net assets as at 30th June, 2001 (unaudited) and 31st December, 2000 (audited) respectively, and approximately 9.8% of the Group’s consolidated cash and cash equivalents position as at 30th June, 2001 (unaudited) and 31st December, 2000 (audited). Should the Guarantee be called upon, after taking into consideration the Counter Indemnity but excluding the interest to be incurred on the Convertible Bonds, the Group’s net debts to equity ratio will increase from 18.2% and 9.5% based on its consolidated balance sheet as at 30th June, 2001 (unaudited) and 31st December, 2000 (audited) to 24.9% and 16.0% respectively.

The granting of the Guarantee by the Company will therefore not have any significant impact on the profitability or financial position of the Group, and such impact may not be realized unless and until such time that the Guarantee happens to be called upon.

RECOMMENDATION

Having considered the following material factors and reasons in respect of the granting of the Guarantee:

• (i) that the Guarantee will be entered into on normal commercial terms and no financial benefit will arise for Yanjing Group, the other indirect shareholder of Beijing Yanjing;

• (ii) that the Convertible Bonds is a suitable means of financing for the expansion plans of Beijing Yanjing which will potentially enhance Shareholders’ returns;

• (iii) that the aggregate principal amount of the Convertible Bonds is not excessive relative to the business and gearing levels of Beijing Yanjing;

• (iv) that the granting of the Guarantee by the Company is regarded by the Investors as an additional assurance in boosting their confidence in the prospects of their potential investments in the Convertible Bonds, which will in turn enhance the success of the Convertible Bonds issue;

• (v) that Yanjing Group, the other indirect shareholder of Beijing Yanjing, has agreed to counter indemnify the Company in respect of approximately 44.55% of the Guarantee, representing the portion of the Guarantee that is in excess of the Company’s effective proportional equity interest in Beijing Yanjing, which will effectively maintain the Company’s contingent liability arising from the Guarantee up to its proportional interest in Beijing Yanjing; and

• (vi) that the Counter Indemnity is credible,

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LETTER FROM HORWATH CAPITAL

we consider that the Connected Transaction is in the interest of the Company, and is fair and reasonable so far as the Shareholders are concerned Accordingly, we advise the Independent Board Committee to recommend the Shareholders to vote in favour of the ordinary resolution to approve the Connected Transaction at the EGM.

Yours faithfully, For and on behalf of HORWATH CAPITAL ASIA LIMITED Francis K Tung Graham Lam Managing Director Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. SHARE CAPITAL

The authorized and issued share capital of the Company as at the Latest Practicable Date was as follows:

Authorized

HK$

2,000,000,000 Shares as at the Latest Practicable Date 200,000,000

Issued

622,500,000 Shares as at the Latest Practicable Date 62,250,000

3. DISCLOSURE OF INTERESTS

(a) Disclosure of interests under the SDI Ordinance

As at the Latest Practicable Date, the interests of the Directors in the Shares or other securities of the Company or any associated corporations (within the meaning of the SDI Ordinance) which had to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including interests which they were taken or deemed to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange were as follows:

Directors’ interest in Shares

As at the Latest Practicable Date, the interests of the Directors and their associates in the issued share capital of the Company and its associated corporations as recorded in the register maintained by the Company pursuant to Section 29 of the SDI Ordinance were as follows:

	Nature of		Number of
Name of Director	interest	Name of associated corporation	Shares held
Zheng Wan He	Personal	Beijing Wangfujing Department	45,738
		Store (Group) Co., Ltd.
Li Fu Cheng	Personal	Beijing Yanjing	18,720

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or their associates had any personal, family, corporate or other interests in the equity or debt securities of the Company or any of its associated corporations as defined in the SDI Ordinance as recorded

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GENERAL INFORMATION

APPENDIX

in the register required to be kept under Section 29 of the SDI Ordinance or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

Directors’ rights to acquire Shares

As at the Latest Practicable Date, the interests of the Directors in options to subscribe for Shares under the share option scheme of the Company were as follows:

	Number of Shares in respect of	Number of Shares in respect of
Name of Director	which options have been granted
	(Note i)	(Note ii)
Mr. Hu Zhao Guang	400,000	3,600,000
Mr. Bai Jin Rong	240,000	2,160,000
Mr. Xing Chun Hua	240,000	2,160,000
Mr. Zheng Wan He	200,000	1,800,000
Mr. Wei En Hong	200,000	1,800,000
Mr. Li Fu Cheng	200,000	1,800,000
Mr. Li Zhong Gen	200,000	1,800,000

Notes:

• (i) These options were granted on 3rd March, 1998, at an exercise price per Share of HK$17.03. The cash consideration paid by each Director for the options granted was HK$1. The options can be exercised at any time within the ten years commencing on 1st September, 1998

• (ii) These options were granted on 23rd June, 1998, at an exercise price per Share of HK$17.03. The consideration paid by each Director for the options granted was HK$1. The options can be exercised in 9 equal portions. The first portion is exercisable at any time commencing on 1st January, 1999, and one additional portion becomes exercisable on 1st January in each of the following years. All of the options (to the extent not exercised, will become exercisable on 1st January, 2007, and if not otherwise exercised, will lapse on 1st January, 2009.

Save as disclosed above, as at the Latest Practicable Date, no other rights to acquire benefits by means of the acquisition of Shares in or debentures of the Company were granted to any of the Directors or their respective spouse or children under 18 years of age, or were any such rights exercised by them; or was the Company, or any of its holding companies, subsidiaries and fellow subsidiaries a party to any arrangement to enable any of the Directors to acquire such rights in any other body corporate.

(b) Executive Directors’ service contracts

Except for Mr. Liu Kai, all executive Directors have service contracts with the Company, each with an unexpired period of approximately 14 months as at the Latest Practicable Date. Mr. Liu Kai has entered into a service contract with the Company for a period of three years commencing on 15th January, 2001.

Except as disclosed above, none of the Directors has an existing or a proposed service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation other than statutory compensation.

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GENERAL INFORMATION

APPENDIX

• (c) As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which contract or arrangement is subsisting at the date hereof and which is significant in relation to the business of the Group.

• (d) As at the Latest Practicable Date, none of the Directors or Horwath Capital has, or has had, any direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, any member of the Group since 31st December, 2000, being the date to which the latest published audited accounts of the Company were made up.

• (e) As at the Latest Practicable Date, Horwath Capital did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, in accordance with the register of substantial Shareholders maintained by the Company under Section 16(1) of the SDI Ordinance and so far as was known to the Directors or chief executive of the Company, the only persons (not being a Director or chief executive of the Company) who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group and the amount of such persons’ interests in such securities, together with particulars of any options in respect of such capital, were as follows:

	Number of	% of total
Name	Shares	issued Shares
Modern Orient Limited (‘‘MOL’’)	90,050,000	14.47
BEIL (Note i)	384,000,000	61.69
Beijing Holdings Limited (‘‘BHL’’) (Note ii)	391,577,000	62.90

Notes:

• (i) The interest disclosed includes the Shares owned by MOL. MOL is held directly as to 100% by BEIL. Accordingly, BEIL is deemed to be interested in Shares owned by MOL.

• (ii) The interest disclosed included the Shares owned by BEIL and MOL. BEIL, the holding company of MOL, is held indirectly as to 50.37% by BHL. Accordingly, BHL is deemed to be interested in Shares owned by BEIL and MOL.

Save as disclosed herein, there is no other person known to the Directors who was, as at the Latest Practicable Date, directly or indirectly, interested in 10% or more of the issued share capital of any member of the Group or any options in respect of such capital that was required to be recorded pursuant to Section 16(1) of the SDI Ordinance.

5. MATERIAL CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31st December, 2000 (being the date to which the latest published audited accounts of the Company were made up).

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GENERAL INFORMATION

APPENDIX

6. MISCELLANEOUS

• (a) The qualification of the expert who has given advice contained in this circular is as follows:

• Name : Horwath Capital

• Qualification : registered investment adviser under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

• (b) Horwath Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear.

• (c) The letter given by Horwath Capital is given as of the date of this circular for inspection herein.

• (d) The secretary of the Company is Mr. Tam Chun Fai who is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Society of Accountants.

• (e) The share registrar and transfer office of the Company is Tengis Limited at 4/F Hutchison House, 10 Harcourt Road, Central, Hong Kong.

• (f) The registered office of the Company is 34th Floor, West Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong.

• (g) The English text of this circular shall prevail over the Chinese text in case of inconsistency.

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the registered office of the Company during normal business hours up to and including 11th April, 2002:

• (a) the announcement dated 26th November, 2001 issued by Beijing Yanjing in relation to the shareholders’ resolutions passed during its first extraordinary general meeting in 2001 with respect to the Convertible Bonds;

• (b) draft confirmation by the Company to give the Guarantee to the Investors;

• (c) the letter of advice from Horwath Capital to the Independent Board Committee, the text of which are set out in pages 8 to 13 of this circular;

• (d) the letter from the Independent Board Committee, the text of which are set out in page 7 of this circular;

• (e) the letter of consent from Horwath Capital referred to in paragraph 5(b) of this circular; and

• (f) the service contracts mentioned in paragraph 3(b) of this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(incorporated in Hong Kong with limited liability under the Companies Ordinance)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Beijing Enterprises Holdings Limited (the ‘‘Company’’) will be held at the registered office of the Company at 34th Floor, West Tower, Shun Tak Centre, 168–200 Connaught Road Central, Hong Kong on Thursday, 11th April, 2002 at 4: 00 p.m. for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolution as ordinary resolution:

ORDINARY RESOLUTION

‘‘THAT the Connected Transaction (as defined in the circular dated 25th March, 2002 despatched to shareholders of the Company) be and is hereby approved.’’

By order of the Board Tam Chun Fai Company Secretary

Hong Kong, 25th March, 2002

Registered office:

34th Floor West Tower Shun Tak Centre 168–200 Connaught Road Central Hong Kong

Notes:

1. A member entitled to attend and vote at the Extraordinary General Meeting is entitled to appoint a proxy (or at most two proxies) to attend and, on a poll, vote on his/her behalf. A proxy need not be a member of the company.

2. A form of proxy for use at the Extraordinary General Meeting is enclosed herewith.

3. To be valid, the form of proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or authority, must be lodged with the Company’s share registrar, Tengis Limited, at 4/F Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before either the time appointed for holding the Extraordinary General Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude a shareholder from attending and voting in person at the Extraordinary General Meeting or any adjournment thereof if the shareholder so desires.

4. Beijing Yan Jing Beer Corporation and its associates (as defined in the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited) will abstain from voting at the meeting.

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